Y2K Clauses - The Dangers of Promising too Much

Published:

12 March 2000 02:51

Updated:

06 September 2011 12:19

Whilst charterparties are, to a large extent based on standard forms, they are also subject to the inclusion of many amendments and additional clauses. These clauses need to be scrutinised with care, as their implications may be more far reaching than initially envisaged. The additional clauses and their effect are also often less well known than the provisions in the standard forms.

For some time clauses dealing with possible Y2K problems
have been appearing in the market. INTERTANKO is concerned that some clauses
require guarantees that an operation is Y2K-compliant. The problem is that in
practice it is nearly impossible for any business to know that they are indeed
100% Y2K-compliant. In an article in INTERTANKO’s September 1999 Tanker Charter
Party Circular the Association has highlighted the dangers of giving guarantees
that cannot be fulfilled when it comes to Y2K conformity clauses. The
Association wrote:

Y2K COMPLIANCE CLAUSES – THE DANGERS OF
PROMISING TOO MUCH

The Y2K problem embraces several date
problems and also the functioning of many products and machines that depend on
programmed electronics for their correct operation. The critical dates include 1
January 2000 and 29 February 2000. Charterparty clauses started appearing in the
market more than a year ago. Y2K is another example of an issue that is given
special treatment in charterparties as opposed to reliance on the more general
clauses that already cover this issue. We have seen the same approach taken with
ISM.

Typically, owners will have to exercise due diligence to keep their
vessel seaworthy and be in every respect fitted for the voyage. This obligation
clearly encompasses taking reasonable steps to ensure that the vessel will not
suffer any Y2K-related problems. Taking such steps is an important safety
measure, which applies to all sectors of the maritime business, whether it is
from the vessel’s or from the shore’s side. To combat the Y2K problem businesses
have had to implement Y2K programmes to ascertain which systems are likely to be
affected and to take remedial steps to ensure that neither the performance nor
the functionality of the equipment will be affected by the problem.

It is
generally recognised that no one can state confidently that their operation is
one hundred per cent Y2K-compliant yet there are clauses that require owners to
warrant or guarantee compliance as opposed to exercising due diligence or taking
reasonable steps to ensure compliance. Since the Y2K problem affects both
vessels and shore facilities alike, it is not unreasonable for a clause to
include obligations on both sides to therefore ensure that the clause is
balanced. For some time now INTERTANKO has supported the use of the BIMCO Y2K
clause where a form of Y2K compliance, clause is required. This clause requires
both owners and charterers to exercise due diligence in ensuring year 2000
conformity. BIMCO’s clause is supported by the International Group of P&I
Clubs. Where owners agree to the more onerous clauses warranting full Y2K
compliance they run the risk of incurring very substantial liabilities even
though they may have exercised due diligence to ensure Y2K compliance. In
addition, owners may not have P&I cover for liabilities arising under such
clauses.

Many of the other Y2K clauses in the market are onerous and all
such clauses need careful evaluation to consider the obligations they impose on
owners and whether they prejudice owners’ rights and P&I cover.

The
INTERTANKO membership includes, as Full Members, 270 tanker companies with over
2,000 tankers totalling 172 million tons deadweight. This is equivalent to 75%
of all independently owned tanker tonnage worldwide. In addition, there are 295
INTERTANKO Associate Member companies.